Gotcha!

Ted Kelly was no stranger to the inside of a police station or the Crown Court dock. He had had many brushes with the law but being charged with financial crime was a new experience.

Ted's home had been searched by the police more than once in the course of an investigation into serious crimes and the police had found documents concerning a buy-to-let property which Ted owned. A search at the English Land Registry turned up a mortgage from Borset Building Society and enquiries there revealed the mortgage application had been submitted online by a mortgage broker, Adrian Broke.

The mortgage application indicated that Ted was a self-employed joiner, trading as Kelly's Joinery Services. Attached to the application were two years accounts for the business, prepared by Peter Addit & Co – members of a leading professional body of accountants, and signed both by Mr Addit and by Ted.

Ted's self-employment came as a surprise to the police (who understood him to make his living from less legitimate activities) and, sure enough, a check with HM Revenue & Customs revealed that they had no knowledge of Ted's self employment either.

“Gotcha!” said DC Lund to himself. To assemble his case DC Lund interviewed Adrian Broke and Peter Addit concerning their dealings with Ted. They confirmed that Ted had approached Mr Addit in June 2008 to have accounts prepared – just a simple Profit & Loss Account. Mr Addit had not been instructed to do any tax work for Ted. He assumed Ted wanted the accounts for his bank or was dealing with his tax himself. Ted produced his passport and driving licence (which Mr Addit photocopied) and had handed Mr Addit a list of work done and expenses from which Mr Addit had prepared the P & L account. The fee was less than £200.

The following year Ted had returned with a similar schedule and Mr Addit had produced the 2009 accounts for him then and there, for a similar fee. The net profit each year shown on the accounts was in the region of £40,000. At the June 2009 meeting there had been some discussion of a property purchase and Mr Addit had recommended the services of Mr Broke the mortgage broker (who was also a client of his).

Mr Broke confirmed that in July 2009 Ted had contacted him about obtaining a mortgage to buy a home for himself. He had produced his passport and driving licence (which Mr Broke photocopied) and two years accounts prepared by Mr Addit. Mr Broke had carried out a fact find and then recommended a mortgage from Borset Building Society and some life and critical illness policies as well as property and contents insurance. Ted had accepted these recommendations and Mr Broke had completed the mortgage application online based on the information and accounts Ted had provided.

Armed with these facts DC Lund arrested Ted, interviewed him, and then charged him with fraud by false representation in that he had dishonestly made a false representation to Adrian Broke that the accounts were true, with the intention of obtaining the mortgage advance, contrary to s2 Fraud Act 2006.

But Ted's version of events was very different. He said he had never met Mr Addit, had never instructed him to prepare any accounts, and had never been self employed as a joiner. He had been wanting to buy a property to let out and his cousin had recommended the mortgage broker Mr Broke. Ted went to see Mr Broke. Although Ted had no regular employment Mr Broke had assured him this would be no problem. All that would be needed would be his passport and driving licence. Ted took these to a second meeting with Mr Broke who asked him to sign numerous documents – all of which he signed, without reading, where Mr Broke pointed. Mr Broke also took photocopies of his passport and driving licence.

Shortly afterwards the mortgage came through and Ted was able to purchase the property and let it out to tenants. The rental income more than covered the mortgage payments (which he always paid on time). Ted also found he was paying for some insurances by direct debit, and he cancelled those.

When the matter came to court DC Lund, Mr Broke and Mr Addit were called by the prosecution and gave evidence.

Under cross-examination Mr Broke confirmed that Mr Addit was his accountant, that he and Mr Addit referred clients to each other from time to time (but without any referral fee) and that he knew Ted's cousin. He also confirmed that as a result of Ted's property purchase he would receive payments from Borset Building Society, from the conveyancing solicitor whom he had recommended to Ted, and from the insurance companies. Had the mortgage not gone ahead he would have received none of these payments, which he estimated at less than £2,000 in total. But he confirmed the statement he had given to DC Lund.

Mr Addit also confirmed the evidence in the statement he had given DC Lund. But under cross-examination he accepted that he had at first given the police a statement saying Ted had approached him initially for two years accounts to be prepared. That had been based on a mistaken recollection which he had corrected in his second statement. Mr Addit had not asked for, nor seen, any bills or receipts in relation to Ted's self employment. He had relied on the schedule presented to him by Ted. He had returned the schedule to Ted and not kept a copy. Mr Addit had believed the accounts to be true based on the information supplied to him by Ted.

Indeed since Ted was no longer a client his files had been destroyed. Mr Addit had not sent Ted an engagement letter. Mr Addit had recently moved to a new computerised system and had not retained his diaries for 2008 and 2009. He had not contacted HM Revenue & Customs in relation to Ted's self employment as he was not instructed to deal with Ted's tax affairs.

It transpired that Ted had not paid Mr Addit for the preparation of either the 2008 or the 2009 accounts. In fact Mr Addit had not invoiced Ted for these accounts as he expected Ted to pay without an invoice. The only documentary evidence which Mr Addit held in relation to his dealings with Ted was the photocopies he had of Ted's passport and driving licence (the same documents which Mr Broke had copied in July 2009).

He accepted that the date on which the 2008 accounts were shown as having been signed in June 2008 was a Sunday. He said the actual date of signing would be within a day or two of that.

The accounts were not prepared for tax purposes. The word “Allowable” which appeared against certain expense headings was on his standard word processing template for such accounts.

He denied however that he had backdated the accounts, or that he had prepared them on the instructions of Mr Broke rather than Ted, or that Mr Broke had paid him anything in connection with Ted's accounts.

Immediately after Mr Addit had completed his evidence DC Lund asked him if he would still have on his computer system the Microsoft Word files for the 2008 and 2009 accounts. Mr Addit thought he could have and that he would be able to access them there and then using a wifi link from the court building.

When he did so it was discovered that the Word files for both the 2008 and 2009 accounts showed a 'creation date' on the evening before the day on which Mr Broke had filed Ted's online mortgage application in July 2009. The creation dates were approximately two minutes apart. These files also each had a later 'modified date'. In one case the modified date was approximately two hours later the same evening.

DC Lund passed this information to prosecuting counsel, and then it was passed on to defence counsel and the judge.

Mr Addit was recalled to the witness box and questioned about this. He maintained that in fact the accounts had been prepared earlier and that perhaps what was now being seen were Word files for later copies of the accounts. He denied that the later 'modified dates' showed that these were in fact the original working copies of the accounts.

That brought the prosecution case to a close. Whilst the jury were excluded the defence asked the judge to dismiss the case.

The judge agreed that the trial should be halted and Ted should be acquitted. The case against him had become so weak and tenuous that the jury could not possibly find that Ted had dishonestly represented to Mr Broke that the accounts prepared by Mr Addit were true – which was the basis on which Ted had been charged.

So, as things turned out, it was not necessary to hear any evidence from the defence witnesses (including myself). In any event the matters and issues which I had drawn to the attention of the defence team – and which had been set out in an expert witness forensic accountant’s report filed at court in advance of the trial – had largely been aired before the court already by defence counsel in his cross-examination of Mr Addit.

David

N.B. Names and certain other details have been changed to protect client confidentiality.

Nothing about Mr Addit's account stands up to close scrutiny on the facts presented. If he had created some sort of paper trail to evidence what he had been asked to do then he might have been more credible. Not even invoicing for the work is the weirdest part.

Interesting ... but I hope courts are not going to make a habit of relying on evidence about creation and modification dates of computer files without hearing expert evidence about what this might mean. The behaviour of computer software in attaching date stamps to files is not necessarily what you might expect. A quick check of a few Microsoft Word files is likely to show some surprising anomalies including files apparently last modified before they were created.

The evidence from Mr Addit regarding the computer file creation and modification dates surfaced only following the completion (so we thought) of his evidence and hence this occurred right at the end of the prosecution case.

The prosecuting counsel (in the absence of the jury) invited the judge to give the jury a 'health warning' that these dates might not mean what they could have been thought to mean. The judge refused to do that - on the basis that such a statement would be evidence, indeed it would be expert evidence - and judges do not give evidence in their cases.

If the prosecution wanted the jury to hear about that they should call appropriate expert evidence to that effect, said the judge.

Of course the prosecution did not have a computer expert 'lined up' to give evidence in this case and so they were unable to deal with the point.

It's an example of how things can happen for which no-one is prepared, as a case unfolds in court.